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Saturday, May 14, 2011

Legalizing Bribery

In a paper published on the website of the Finance Ministry in March 2011, the Chief Economic Advisor to the Indian government, Kaushik Basu, proposed that in order to tackle corruption in India, the act of paying a bribe should be made legal, while retaining the illegality of the act of receiving a bribe. The proposal was vehemently opposed on moral grounds by some, who argued that by making the act of paying a bribe legal, we would confer a vestige of “morality” on the act of paying bribes, and consequently corruption would increase, not diminish. However, the moral opposition to Kaushik Basu’s claims ignores the tenuous nexus between law and morality, and overlooks the fact that there is a moral reason for legalizing the act of paying bribes in India –individuals who pay “harassment” bribes in India are often “victims” of corruption, and a law that punishes victims is itself highly immoral.

At present, the Prevention of Corruption Act, 1988, punishes both the giver and receiver of a bribe. Accordingly, a bribe giver has serious disincentives against blowing the whistle on the government official who demands a bribe, since the bribe giver herself is liable to be prosecuted after paying the bribe. Equally, a person has disincentives against not paying the bribe and blowing the whistle, since her work does not get done. Basu argues that by making the act of paying a certain class of bribes (ones he terms “harassment bribes”, i.e. “bribes that people often have to give to get what they are legally entitled to”) legal, a bribe giver will no longer be afraid of complaining against the official who demands a bribe, after the bribe has been paid and work done. This legal construct, Basu argues, would dissuade government officials from even asking for bribes in the first place, since they would be aware that bribe givers could complain against them with impunity after the act.

How the law will go about the task of distinguishing between “harassment” and “non harassment” bribes is the primary question that Basu’s proposal will have to address, perhaps by excluding corporations from its scope and by defining entitlements necessitating “harassment bribes”. However, those that argue against Basu’s proposal by saying that making the act of paying bribes legal in India would make bribery “moral”, acceptable, and therefore more rampant, are wrong for at least two reasons.

First, the moral argument fails to distinguish between law and morality - what is legal is not always moral, and vice versa. After all, it is immoral for a man to cheat on his wife, but it is not illegal for him to do so (unless he cheats with a married woman). Within certain limits, corporate houses can adopt perfectly legal though highly unethical and immoral practices to destroy competition. The very idea of “damnum sine injuria” in legal thought testifies to the fact that harm can be inflicted upon a person without committing an illegal act. This proposition also works when flipped around. After all, it was illegal but moral for Oskar Schindler to disobey Hitler’s laws in Nazi Germany, and for Mahatma Gandhi to disobey salt tax laws in colonial India. The argument that legalizing the act of giving bribes will somehow sanctify it and make bribery moral ignores the fact that the connection between law and morality is often tenuous, that making bribery legal will not make it moral.

Second, it can be dangerous to adopt high moral arguments by ignoring rampant social diseases. The moral opposition to Basu’s idea is reminiscent of moral opposition to legalizing prostitution. Its opponents posit that legalizing prostitution will have the negative consequence of making the act of prostitution moral. Yet, this argument ignores the social reality of prostitution, that despite the law’s prohibitions prostitution will continue to exist in any society, and so will poor health standards amongst sex workers. Far from making prostitution moral, the law that legalizes prostitution opens its eyes to the social reality of the existence of sex workers, by setting up health checks, precautionary standards, and by controlling disease. Analogously, refusing to legalize the payment of bribes on moral grounds ignores the fact that corruption will continue to exist in India. On the other hand, legalizing the act of paying bribes would free up unwilling bribe givers to complain against the true perpetrators of corruption, those that demand bribes.

Finally, the moral argument also ignores the fact that there is a moral reason to legalize harassment bribes in India. This is because in some cases, those who pay bribes to get entitlements like pensions or water supply are “victims” of corruption more than they are perpetrators of or accomplices to corruption in India. Indian law is known to punish victims: it punishes the boy who attempts suicide, the father who pays dowry to marry his daughter off, and shamefully, until 1990 even a rape victim was considered an accomplice to the crime of rape. Analogously, though to a much lesser extent, the citizen who parts with hard earned money to inspire public servants into action is a victim of the crime of corruption in India. In 2010, the Delhi High Court (Aniruddha Bahal v. State, 172 (2010) DLT 268) was appalled by the fact that when journalists in a sting operation exposed 11 Parliamentarians on camera for having taken money to ask questions in Parliament, the journalists were prosecuted, but not a single case was registered against the Parliamentarians. In exonerating the journalists the High Court arguably recognized the principle that the bribe giver in India is a victim of bribery more than she is an accomplice to the crime. Those that argue that Basu’s proposal would encourage the Indian citizens who opt not to pay bribes to start paying bribes in India perhaps overlook the fact that not paying a bribe is hardly an option for victims of corruption in India anymore.

The law that punishes a bribe giver arms the government official who demands the bribe more than it arms the Indian citizenry, much in the same way as the law that punishes the giver of dowry arms the family that demands the dowry – in both cases, the person who demands payment can file a police complaint against the person who makes the payment if the latter decides to complain.

We would do well to exclude corporations (and their agents) from the ambit of Basu’s proposal. It is well known that some corporate houses in India have succeeded by virtually institutionalizing corruption in India, and allowing such corporations to continue to do so with legal impunity would be foolhardy. Further, foreign corporations prohibited by their domestic laws from paying bribes overseas (e.g. under the Foreign Corrupt Practices Act in the US) would consequently be able to pay bribes in India if Basu’s law includes them within its ambit. However, punishing the retired judge for paying a bribe to get his pension, or the journalist for exposing corruption on camera, results in punishing the victim of an offence, and disables her from speaking up against the perpetrators of corruption in India.

3 comments:

Nearly every Indian citizen is a victim of corruption but to legalize it is unthinkable and unacceptable. It would make a mockery of the judicial system and of the sovereignty vested in the people of this country.

This is an excellent write up with solid facts and a clear perspective. The examples you have cited are valid enough, particularly that of the Aniruddha Bahal case wherein the parliamentarians were not prosecuted but the journalists were. f

I thought its consistent, and Kaushik is likely to have a point. To the extent that the grease is constrained ("harrassment bribes" as you call them), giving bribes ought to be "safe harbored" conditionally. Am not too sure however if bribing is constrained in a statistically significant sort of way though. Most "gratuity payments" are likely to be consensual, emanating from people who want more than their deserved share to bureaucrats keen on reaping the rents from their monopoly over supplying public goods.

A better way could be try and reduce the incentives to seek bribes by indexing pay to CPI, and introducing a performance-based component as a portion of bureaucrats' pay. I recently attempted precisely the latter approach to construct a model for performance-based pay to Securities and Exchange Commision officials contingent on relative reduction of cost of equity capital over the life of tenure. Will post the ssrn link on this thread soon.

I live in Indonesia, where corruption is known to be rampant. I myself has been denied many times by officers because of this issue. Consider this idea. Legalize Bribery only for police and the army. Let them issue receipt for regular payments from the people.

This way we could preserve the straightness of the system and expect the police to become more aggressive against actual corruptions (like bribing for the sake of non-mutual solutions).

Advantage:1. The tips from the people competes with tips from big companies because of the quantity2. Non military officials' salary will be adjusted to CPI.3. Insurance companies could tip more for the army and the police. So when chaos happened their tips would be lowered.etc...

An opinion, the salary of the police and the army is incomparable to the lives they risk for us.

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